must have metrics...evaluation, measurement and improvement is implemented. •numbers used as a...

October 15-17, 2019 | Westin Kierland Resort | Scottsdale/Phoenix, AZ

Must Have Metrics

Pam Miller


Must Have Metrics

Pam Miller : : Senior Trainer : : IOFM


Some “Official” Definitions of Metrics

• “Measures used to indicate progress or achievement.”

• “A management tool through which a plan for evaluation, measurement and improvement is implemented.”

• “Numbers used as a measurement

for standard of quality for

comparing different items or

time periods.”


Why Bother with Metrics?

• Peter Drucker, Peter Drucker –

whenever metrics comes up his

words become the mantra:

• “If you are not measuring it, how can you manage it?”

OR

• “You can only manage what you can measure.”


An Old Warning that Still Holds True

“You’ve got to use spreadsheets; there’s no excuse for not getting the numbers. But there is also no excuse for just going by the numbers. Numbers can’t capture everything.

There’s an old saying that ‘numbers drive out thinking.’ And that certainly is true.”

Ray Panko

University of HawaiiQuoted in The Wall Street Journal

6/13/2006


Enough Theory – Let’s Talk What Metrics can Do for your AP Department

• Metrics can give you a snapshot of how your AP Department is doing

– Replace guesses with data and facts

• Metrics can help your department improve performance

• Metrics can help you identify and/or diagnose weaknesses

• Metrics can add value


And Metrics Can:• Help you determine what kind of automation

would be the best fit for AP– And help you make the case to those who hold the

purse strings

• Help you educate your stakeholders – and add credibility– Vendors, customers, bosses, executives

• Help you encourage/increase understanding of AP processes by your partners and critics– And gain their cooperation

• Help you raise the estimation of AP in your company


Real Life Questions Metrics can Help you Answer

• How many invoices can a person do?

• Is our workload growing?

• When will I need another person?

• How much of our work is paper based?

– email? Fax? Mail?

• What kind of mistakes are we making?

– Is there a pattern to the mistakes?

• How successful is our p-card program in decreasing the number of small dollar invoices in AP?

• What’s the ratio of ACH payments to checks?

– Is ACH growing? How fast?


But Many Metrics Initiatives Go Wrong Or, Simply, Fall Short of Expectations

• Measurements do not address problems or issues that need to be addressed

• Don’t count it just because it’s easy to count or you know other departments count it

– “Key Performance Indicators”

• Data collection effort is not

commensurate with information collected

– Especially if counts must be collected manually

• Decisions are not being made based on the metrics that are being collected– Measurement for measurement’s sake is a waste of time and good will


Go Wrong, continued• What’s being measured is

– Unclear and/or ill-defined– Easily misinterpreted– Easily “gamed”

• Measurements drive the wrong behaviour– “Easy” vs. “hard” invoices

• Timeliness is critical– While most measurements are historical, they

should measure recent history!• Too many measurements

– You don’t have to measure everything• Although some practitioners would dispute this!


Solid Metrics Programs• Ensure that the purpose of the measurements is clear

and communicated • And that definitions of what is being measured are

clear and unambiguous• Align with organization’s goals, vision, and mission• Address organization’s key pressures & challenges• Include measurements that can enhance efficiency

– Cost, effort and timeliness• Include measurements that can enhance effectiveness

– Quality, compliance, impact of changes

• Monitor interfaces

• Comply with privacy and regulatory issues


A Metrics Framework

• What is to be measured?– What should I count?

• Why do we want to measure it?• When should it be measured?• How is measurement taken or done?

– How will I count it?

• How are measurements adjusted/validated?• How are measurements used?

– What will I do with the numbers once I have managed to collect them?

• How are measurements reported?


Let’s Save the “What” for Later

• Why are we measuring this?

– What are the problems, issues and/or

reasons for monitoring?

– What decisions can or might be made

based on outcomes?

• When should measure this?

– What cost and/or effort is required?

– Are there contractual or regulatory constraints?

– How accurate do the measurements have to be?


Saving for Later, continued• How will we measure this?

– Are there reports that exist already?• Is a query tool available?

• Do you have a data warehouse?

• Should you/could you get custom reports written?

– Will it require manual collection?• Baskets, manual counts

– Can we/should we use

paper-based surveys?

– Or online surveys?

– And/or sampling?


Saving for Later, continued

• How are the measurements adjusted/validated?

– Do we need to prepare baselines?

– Does data need to be standardized?

– How will we normalize for missing data or other changes?

– How will we verify data accuracy?

• Reasonableness check!

– How we ensure the sample size is adequate and representative?


Saving for Later, continued• How are measurements to be used?

– To assess deviation from or compliance with a plan, forecast, budget or expectations?

– To identify problems, potential problems or opportunities?

– To perform cause and effect analysis?

– To determine effectiveness of corrective actions?

• How are measurements reported?– Via tables and/or graphic displays?

– Online real-time via a dashboard?

– As part of a regular status report?

– Ad Hoc?


Now to the “What”• Count things that have meaning to your

department

• And that you have control over*

– In other words, things that are

“actionable”

– Things that you can do something about!• Effectiveness vs. efficiency• Consider:

– Is accuracy more important than speed?– How much of the process do you control?– And what about the things you do not control?


The “What,” continued• Count things that answer questions you

have about your AP process – Sometimes this might mean counting

things that you do NOT have control of*• As a means of effecting change down the road

• 2018 IOFM survey results indicate 40% of the respondents measure cycle time from the date the invoice is received in AP, not the date of the invoice

• Because -- many of the issues that prevent timely payment happen outside of AP – Before AP even knows there is an invoice!


These Issues include:

Invoice received late 21%

Lack of receipt 17%

Pricing discrepancy 14%

Lack of payment authorization 13%

Invoice/PO mismatch 13%


Metrics are a Powerful Tool

• But while this helps AP look better and reflects more accurately on the time it takes AP to process transactions

• It’s not a real solution to the problem

• In order to – Effect change,

– Improve the process,

– Be able to suggest changes elsewhere

in the process,

• You need numbers, data, facts!


10 “Must-Have” Metrics (YMMV)

1. Input Quality– How many exceptions?

• Those requiring contact with someone for correction or clarification

• Identify the source and cause so a fix can be found2. Input Timeliness

– How many transactions are received too late to comply with terms?• Invoices received by A/P too late to take discount• Count the cycle time from invoice date to receipt

of transaction by A/P


“Must Have” continued

3. Process Quality

– How many cancelled transactions and/or

A/P errors caught within A/P?

– Identify source and cause so a fix can be found

– If errors made within A/P are not caught in A/P

• Customer and vendor inquiries, investigations, and complaints increase

4. Process Timeliness

– Cycle time from receipt of transaction in A/P to posting

– Aging of backlog



5. Output Quality

– Look at errors not caught until a subsequent party or process received or used the output• Duplicates caught by a third party audit• Stops, voids, reissues, returned checks, “old” uncashed checks

6. Output Timeliness– Completion of processing within appropriate time frame

• Whether service level agreements (SLAs) are being met

• Inquiries as to payment status – real ones – not those from vendors who call before they even mail them



7. Project Quality

– Did project achieve intended results?

– Were performance improvements achieved?

– Were changes or corrective actions required?

8. Project Timeliness

– Was project or were project steps

completed on schedule or delayed?



9. Customer and Vendor Satisfaction

– Perception and reality as to what’s working well and what needs improvement

10. Employee Satisfaction and Development

– Expectations and progress towards achieving professional and personal goals

• To help identify problems and

opportunities including training

that may be needed


Remember the Metrics Framework?

• What is to be measured?– What should I count?

• Why do we want to measure it?• When should it be measured?• How is measurement taken or done?

– How will I count it?

• How are measurements adjusted/validated?• How are measurements used?

– What will I do with the numbers once I have managed to collect them?

• How are measurements reported?


Let’s Apply it to Input Quality

• What are we measuring?– Number and $ amount of invoices received

by AP requiring exception processing• Why measure this?

– Invoices that contain exceptions can take 10 times more time and effort to process than clean ones

– We can’t fix problems unless we identify the source & cause of the errors• Exceptions may be due to lack of training, inadequate

communication, poor processes• When is this measured?

– Every time A/P can not process an invoice transaction without requiring contact with • A supervisor, submitter, approver or vendor


Applying to Input Quality, continued• How is this measurement done?

– If system can not track, log critical information:• Date, time, vendor, submitter/approver, description of

the problem (source and/or cause)• How is this measurement adjusted/validated?

– Develop a list of problem sources & causes over time• How is it reported?

– Graphs could show trends of numbers and $ amounts– And percentages of total volumes– Analyze by vendor, submitter/approver, problem source or

cause• How is it used?

– If a specific vendor or specific submitter/approver has recurring problems, determine

– If/where process changes – And/or training is needed


Now Let’s Apply it to Input Timeliness• What is being measured?

– Number and $ amount of invoices received by AP too late to take discount (or even make net due date)

• Why measure this?– Missed discounts can significantly impact the bottom line– Late payments make vendors cranky

• When is this measured?– When a discount eligible invoice arrives in AP too late to

take the discount• How is this measurement done?

– The system: based on PO terms and/or vendor’s default terms

– Or via a spreadsheet including the following:• Invoice date, date received by the company, date sent

to AP, submitter/approver, vendor, date received in AP, Date entered into AP System


Applying to Input Timeliness, continued

• How is this measurement reported?– Calculate # of days between each pair of dates & total

elapsed time– Report # of missed discounts and value of missed discounts

for each pair– Present information as graphs showing trends of numbers

and $ amounts as well as percentages of total volumes• How is it used?

– Determine if problem is due to • Vendor, delivery method, department that receives the

invoice or internal mail• Day of week or day of month sensitive

– Based on magnitude of the problem• Identify process improvement/enhancements or training

that may solve the problem• Decide whether further monitoring is needed


Let’s Apply it to Customer Satisfaction

• When is this measured?– Should be done once a year and/or

several months after implementing a major system or process change

– Do not do unless you intend to act on the information received!

• How is this measurement done?– Typically done via survey (see next 2 slides)– If sample is small, can be done via phone

interview or paper– If sample is large, use an online survey tool


Sample Customer Satisfaction Report Card

Specify the number that best describes your satisfaction with A/P’s service 1. Very Dissatisfied 2. Somewhat Dissatisfied 3. Somewhat Satisfied 4. Satisfied 5. Very Satisfied

1 2 3 4 5

Cost _ _ _ _ _

Timeliness _ _ _ _ _

Accuracy _ _ _ _ _

Service _ _ _ _ _

Policy adherence _ _ _ _ _

Overall service provided by AP _ _ _ _ _

What are some of the positive things we are doing? _____________________

What do we need to do differently? ___________________________________

Comments and suggestions: _________________________________________

________________________________________________________________

Originally developed by AT&T


Sample Vendor Satisfaction Report Card

Specify the number that best describes your satisfaction with AP’s service

1. Very Dissatisfied 2. Somewhat Dissatisfied 3. Somewhat Satisfied 4. Satisfied 5. Very Satisfied

1 2 3 4 5Timeliness of payments _ _ _ _ _Accurate and sufficient information

for you to post transactions _ _ _ _ _Prompt response to your inquiries _ _ _ _ _Understanding how to do business with us _ _ _ _ _Our adherence to contract/PO

terms and conditions _ _ _ _ _Overall service provided by A/P _ _ _ _ _

What are some of the positive things we are doing?_________________________What do we need to do differently? _____________________________________Comments and suggestions: _____________________________________________________________________________________________________________

Copyright ©1998-2007 RECAP, Inc. Used with permission.


MMDV

• These are great measurements– They get at the root of many issues in AP

– And can really help convince others of the value of improving the entire process

• But I also need some basic, simple counts that give me that “snapshot” of how AP is performing

• And that are easy & quick to share with my bosses to improve their knowledge and appreciation of AP


Did you Notice?• Something lacking from the “must haves” is the

cost to process AP– Yes, money is mentioned in terms of

discounts

• And many of these metrics identify

where costs are coming from

• And improving processes is likely to reduce them

• But how will we know unless we know what our costs are now –

• And after we make changes to the process


So, What Did I Measure?

• Invoice counts– Per person– (Lines)– EDI/electronic vs. paper vs.

PDF– Load balancing

• Number of employees• p-card Statistics

– Managing to the rebate

• Rush checks• Payments

– Checks vs. ACH– Void checks

• Discounts taken• Discounts charged back• Credit aging• Mail room receipts/costs• Cost to process an invoice• Gross pay out• Net pay out• # of Expense accounts*• Pay-alones (periodically)• PO/invoice mismatches**


Other Stats I Wanted to Measure but Never Quite Got There

• One touch” invoices– A current buzzword– Means something different to me than

it might in most AP Departments• Wrong vendor paid

– Our most common mistake– Tracking it could help us improve

• Re-issued checks– Goes along with paying the wrong vendor

• Real turn around time; mail receipt to keyed into the system

• Vendor adds/deactivations/overall vendor counts (ongoing)


IRL How Did I Stack up to the 10 “Must Haves?”

1. Input quality – exceptions – PO to invoice mismatches was a failed attempt to capture this

2. Input timeliness – discounts charged back captures some of this

3. Process quality – void checks, credit aging captures some of this

4. Process timeliness – pretty much NA although my wish list identified exactly this

5. Output quality – void checks, discount chargebacks capture some of this

1. The IT help desk fiasco (counting & logging vendor calls)


Stacking up to the “Must Haves,” continued

6. Output timeliness – discounts taken & chargebacks captures most of this

7. Project quality – no official measurements although we always tried to measure the effect whether the project was large or teeny tiny

8. Project timeliness – no official measurements and for big projects these would be scary numbers indeed!

9. Customer and vendor satisfaction – we did these exact surveys a couple of times with mixed results

10. Employee satisfaction & development – we did an employee survey once or twice and tried out 360 degree performance reviews


And to the Metrics Framework?

• What to measure – clearly I had my list• Why – generally to understand how things were

going – We sometimes did a short term count of something

when we were attacking a specific issue– And to understand how we were improving, especially

after making changes

• How – for the most part by the system. – Some custom reports were written – Counting expense accounts was manual

so that was not ongoing– The PO/invoice mismatch adventure


To the Metrics Framework, continued

• How are measurements adjusted/validated?– Comparison among reports

• Invoices by location by vendor oopsie

• How are the measurements used?– Identifying problems

– Justifying increasing automation

– Spreading the word about AP’s contribution to the company

• How are the measurements reported?– Simple spreadsheets distributed or placed on the AP

“bulletin board”


Using Metrics to Tell AP’s Story

• Politics is all about framing issues– Frame AP yourself – don’t let others do it for you

• What does AP do anyway?– Share your monthly statistics with executives– Compare where your department does well with

external benchmarks– Share your successes on metric based projects

• That AP bulletin board was

between the C-suite and the break

and rest rooms…..


Basically Metrics are a Way to Keep Score

• Know who cares about what• My controller cared about discounts

– Important to keep him informed on a monthly basis • My supervisor cared about paying on time and closing the month• Our CAO & Treasurer cared about efficiency

– Invoice counts by person translate to about 40,000-50,000 invoices per year per FTE – important to know in a company that grew by acquisition

– And for every 50,000 invoices we turned from paper to electronic AP could eliminate an FTE – or take on value added work

– They thought I had “accounts payable down to a science.”– Why do you think they thought that???

• My CEO cared about EPS• This is what you are keeping statistics for

– Tell the story!


Benchmarking

• Benchmarking is simply comparing

your performance today to

• Your performance in the past

• Or to the performance of another organization that is similar to yours

• You need data to do this

• And you need to understand where your data is coming from and what it includes

• “Beat yesterday”


You’re Not Done!

• Use the metrics framework to develop metrics to deal with– Your top AP goals– Your key AP pressures – Your key AP challenges– External partners

• Review and reassess after 3, 6 and 12 months– For each, review against the metrics framework– Decide which to keep, which to drop– Identify others


Pam Miller, Senior Trainer, IOFM

[email protected]

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